Franklin Templeton asks SEC staff whether on-chain fund trades need 1940 Act pricing exemptions

The Sept. 17 relief is built around stocks. As news.bitcoin.com describes it, the SEC's innovation exemption temporarily lifts certain exchange and dealer requirements for qualifying blockchain venues and liquidity providers. It also permits limited tokenized stock trading through pools open to approved participants ^[8]. Franklin Templeton took its agenda to the Crypto Task Force 22 days later ^[17][1], and the agenda included the firm's view of that exemption ^[3]. Most of the agenda concerns a different statute, the Investment Company Act of 1940 ^[6][12].

A redeemable fund share is priced by the fund. Section 22(d) generally requires sales at the prospectus price. Rule 22c-1 generally requires trades at the next share value calculated after an order arrives, meaning assets minus liabilities divided by shares outstanding ^[6]. BENJI tokens are shares of Franklin's government money market fund ^[15]. A service fee paid to the provider on the other side of a BENJI swap is a charge added to a price the rules tie to the prospectus or the next calculated value ^[5][6].

The pool is the harder puzzle. An investment company generally pools investors' money to invest in securities, and that classification can bring registration and fund-management requirements ^[12]. A liquidity pool holds deposited assets to facilitate trading, and each depositor holds an interest representing its position ^[16]. Those interests raise a second question: whether they need exemptions from treatment as securities under the 1933 and 1934 Acts ^[13]. In the money-fund pair, a pool classed as an investment company would be a fund holding shares of another fund. A single trading pair can therefore touch three federal securities statutes ^[18].

Tokenized ETFs add a venue question, because the agenda describes a tokenized securities venue as separate from a national securities exchange ^[11].

The SEC could settle this in one of three ways. Staff could fold fund-pricing and pool-status relief into the innovation exemption, with conditions modelled on the stock version: trading-volume limits, equivalent shareholder rights, auditable public smart contracts and halts tied to the primary exchange ^[9]. The narrower route is product by product, like the Aug. 12 no-action position that allowed specified custody arrangements for Franklin funds holding BENJI, subject to safeguards and board oversight ^[14]. In the third, staff apply the pricing rules as written, and fee-paying fund pairs do not launch in the form Franklin described.

We think the narrow route is likelier for the money fund. The Aug. 12 position shows staff already handling this product through specific, conditioned arrangements ^[14]. The case against that view is the venue question. If staff accept a tokenized securities venue as its own category ^[11], one broad exemption would cost the agency less work than a queue of individual positions, and the first route wins.

Franklin reported $1.79 trillion in preliminary assets at Sept. 30 ^[2] and has kept fund records on a blockchain since FOBXX launched in 2021 ^[15]. Here it is spending legal time on questions before putting fund shares into pools on these terms. The account does not report any response from staff.